Impact of Covid-19 on International Trade
The world somehow came to a stop when covid-19 pandemic struck it. Covid-19 has been categorized as a public health emergency. This deadly pandemic has affected the operations of every business and everyone in the country. People have lost their jobs as a result of the covid-19 disease, hence increasing the rate of unemployment. Both domestic and international trade has been affected by the covid-19 pandemic. International trade is a type of business that involves the exchange of goods and services across international borders. International trade has many characteristics, the main one being that it exposes a country to new markets and products from the partner country. For instance, if country A transfers its products to country B, then it means that country A is exporting that particular good, whereas B is importing the good. Covid-19 has several impacts on international trade, some of which include the following.
No one is benefiting from what other countries are producing
Since there has been lock down in most countries in the world, it is difficult for countries to supply what they are producing to other countries. This means that they are only producing goods, but no country is benefiting from what they are creating. In addition to that, in places where production has been halted, the products that were produced earlier cannot be delivered to the respective countries because no flights are allowed in or out of the country. This is a significant loss to the economy and international trade as a whole. It has also reduced the rates at which countries trade globally.
Higher prices of goods
The prices of different goods have also gone up since the existence of the covid-19. For instance, if good A costs about $200 on days when the coronavirus was not there, then you will notice that the price has gone extremely high, and maybe doubled. This may be because that particular good is in demand and since it is being produced in small quantities, many people want it, and the only way that the producer will benefit is to sell it for double the price.
Travel restrictions negatively affecting the economy
A country benefits mostly from international relations and foreign trade. Airlines services are of great benefits to the economy in that it improves the quality of life and living standards. Moreover, it is also essential in increasing the growth of the economy by doing away with poverty and facilitating tourism. However, since the existence of the covid-19, there have been travel restrictions, restricting airlines from moving freely in and out of countries. This is, in turn, having a negative impact on the economy and trade. Foreigners no longer fly in and out of different countries.
Disrupted supply of components
China supplies most of the components used in different parts of the country. Covid-19 first started in Wuhan, which is in China; hence it disrupted the production and supply of goods across the world. The manufacturing of productions has been organized through the Global Value Chains, where products and other raw materials are shipped a number of times around the world. The world is currently experiencing a significant drop in the production of goods, and this problem could go on for some time, hence having a negative impact on the economy for years. This value chain supply has disconnected producers across multiple countries.
Financial loss for banks
Banks earn a good profit on supply chain and trade finance products like the letter of credit financing, invoice factoring, etc. The entire supply chain and trade between the countries has been severely affected due to this pandemic. This resulted in a huge loss for multinational banks like Barclays, Citi Bank, HSBC, etc. The loans provided by the banks to small and big enterprises are also resulting in bad loans due to the complete lock down imposed by several countries.
Oil prices have fallen
Oil prices have drastically fallen because of the covid-19 pandemic. Usually, traders are always in need to use the oil, hence forcing them to pay for the oil even when there is an increase in the price of oil. However, covid-19 has changed that perspective and producers are also willing to pay off the traders so that they can get the oil off their hands. Countries are under lockdown, and oil is not a central issue of concern in recent times. No oil producer wants to get stuck while producing oil, and this is the main reason why they are even paying traders to take the oil they have.
Demand and supply of fuel crisis
The demand for fuel is expected to decline per day, and oversupply is also turning out to be a loss. Recently, finding countries that have a high demand for fuel is rare because all the resources have been channeled towards finding appropriate measures to help in containing the virus. This sector is facing an imbalance in demand and supply. Therefore, this crisis is also negatively affecting the operations of international trade.
Impact on Insurance industry
The trade and supply chain disruption has also affected the insurance companies. The buyers and suppliers generally insure their consignments to mitigate the losses during the transit via Air or Waterways. The main mode of consignment transport for international trade is via sea. Therefore, the insurance companies operating in the marine sector are severely impacted. Read more about What is marine insurance and its types.
A country’s dependence on imports for the covid-19
Most countries depend on imports from foreign countries to help them in containing the spread of the covid-19. However, this has been made impossible as many countries have restrictions on going into and out of the country. This means that the country which is depending on the covid-19 containment supplies from foreign countries will likely suffer because of this restriction. They will be forced to look for other adaptive measures to keep them safe.
Closure of huge companies
When the outbreak of covid-19 was known to have started from Wuhan in Chins, big companies such as MacDonald’s, Apple and Starbucks closed their branches in China. This means that the partnership between the United States and China has been weakened, hence affecting international trade.
International trade forms the basis of a country’s economy. Imports and exports are just some of the ways through which a country develops a trade-relationship with another country. However, since the emergence of the covid-19, things have changed all over the world and international trade has also faced some challenges because of the covid-19. The prices of oil have drastically fallen, leading until the producers are willing to pay traders to get the oil off their hands. Moreover, the supply chain of goods and services across the world has also been disrupted. Countries are producing goods, but no one is benefiting from the product because of the restriction of movements into and out of a country. Therefore, covid-19 has adverse effects on international trade.
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